Loan Calculator

About the Loan Calculator

A loan has four numbers: how much you borrow, the interest rate, how long you take to repay it, and the monthly payment. Fix any three and the fourth is determined.

That is genuinely all there is to it, and this calculator works in all four directions — because the question people actually have is rarely "what is the payment". It is more often "what can I afford", "how long will this take", or "is this deal as good as it sounds".

How to Use the Loan Calculator

Monthly payment. Enter the amount, rate and term. Optionally add an overpayment to see what it does.

How much can I borrow? Start from the payment you can manage.

How long will it take? Start from the amount and what you are paying.

What rate am I paying? Work backwards from the numbers on an offer, which is the only way to compare a deal quoted as "£X a month for Y months" against one quoted as a rate.

The Payment Formula

             r
  P = A × ─────────
          1 − (1+r)⁻ⁿ

  A = amount borrowed
  r = interest rate per month (annual rate ÷ 12)
  n = number of monthly payments

Unpleasant to look at and simple in what it does: it finds the single fixed payment that exactly clears the balance in n months, given that interest accrues on whatever is still owed.

At a zero rate it breaks, because the denominator becomes zero. That is not a flaw to guard against — interest-free credit is real — so the calculator handles it separately: with no interest, the payment is just the amount divided by the number of months.

Solving it for the rate is impossible algebraically. There is no rearrangement that isolates r. Every calculator that answers "what rate is this?" finds it by trial, narrowing a range until the payment matches. This one says so in the working rather than implying a formula it does not have.

Where Your Money Actually Goes

The payment is the same every month. What it does changes completely.

Interest is charged on the outstanding balance, so at the start — when the balance is highest — most of the payment is interest and very little reduces the debt. As the balance falls the interest shrinks and the principal share grows.

For £200,000 at 6% over 30 years, the payment is £1,199.10:

| Payment | Interest | Principal | Balance after | |---------|----------|-----------|---------------| | 1 | 1,000.00 | 199.10 | 199,800.90 | | 60 | 931.88 | 267.22 | 186,108.80 | | 180 | 712.92 | 486.18 | 142,097.98 | | 360 | 5.97 | 1,194.17 | 0.00 |

In the first month, 83% of the payment is interest. After fifteen years — half the term — the balance has fallen by only 29%, with 71% still owed. That is not a trick; it is what charging interest on a balance does, and it is the single most useful thing to understand about a loan.

It also explains why overpayments are so effective early on. Every extra pound in month one removes a pound of balance that would otherwise have accrued interest for 359 more months.

The Cost of a Longer Term

Stretching a loan lowers the payment. It does not lower the cost.

£25,000 at 7.5%:

| Term | Monthly | Total interest | |------|---------|----------------| | 3 years | 777.66 | 2,995.58 | | 5 years | 500.95 | 5,056.96 | | 7 years | 383.46 | 7,210.24 |

Going from three years to seven cuts the payment by half and more than doubles the interest. Both facts are real. If the shorter payment is unaffordable then the longer term is the right choice, and it is worth knowing what it costs rather than only what it saves each month.

The Minimum-Payment Trap

If your payment does not cover the interest, the balance never falls.

£5,000 at 24% accrues £100 of interest a month. Pay exactly £100 and you pay £100 every month forever, and still owe £5,000. Pay £99 and the debt grows.

This calculator says so plainly instead of returning a term, because the honest answer is that there isn't one. It also tells you the threshold — the figure you must exceed before any of the payment starts reducing the debt.

This is not a hypothetical. Credit card minimum payments are often set close to interest plus a small percentage, which is why a balance left at the minimum can take decades to clear.

Step-by-Step Example

£25,000 over 5 years at 7.5%.

  Monthly rate:  7.5% ÷ 12 = 0.625%
  Payments:      5 × 12 = 60

  Payment = 25,000 × 0.00625 ÷ (1 − 1.00625⁻⁶⁰)
          = 156.25 ÷ 0.311908
          = 500.95

  Total paid:     60 × 500.95 = 30,056.96
  Total interest: 30,056.96 − 25,000 = 5,056.96

So the credit costs £5,057, or about 20% of what was borrowed.

The first payment, broken down:

  Interest:  25,000 × 0.625% = 156.25
  Principal: 500.95 − 156.25 = 344.70

Adding £100 a month clears it in 49 payments instead of 60 — eleven months early — and saves £1,013.70 in interest. The overpayments total £4,900, so about a fifth of what you put in comes straight back as interest you never pay.

Understanding Your Result

The result is the figure you asked for.

The total cost is everything you will pay, across every payment.

The interest is that total minus what you borrowed, with the percentage of the loan it represents — the clearest single measure of what the credit costs.

The first payment shows the interest and principal split, which is where the shape of the loan becomes visible.

The worth knowing line carries the detail specific to your case: the adjusted final payment, what an overpayment achieves, or what a slightly larger payment would do.

A note on the final payment

The last payment is usually a little different from the others. Rounding each payment to the penny leaves a few pence of drift over a long term, and real lenders adjust the final payment to settle the balance exactly. This calculator does the same, which is why the schedule ends on zero rather than a stray balance of eleven pence.

When Should You Use This Calculator?

Before applying. Knowing the payment before a lender tells you is the difference between negotiating and accepting.

Comparing offers. Two loans quoted differently — one by rate, one by monthly payment — can only be compared by putting both into the same terms.

Deciding on a term. Seeing the payment and the total cost side by side is the whole decision.

Considering an overpayment. The saving is usually larger than people expect, and front-loaded.

Checking a quote. If a lender's figure differs from this, the gap is fees, a different compounding convention, or insurance — and it is worth asking which.

Debt planning. Working out how long a balance takes to clear at a given payment, and whether the payment is above the interest at all.

Common Mistakes

Comparing monthly payments rather than total cost. A lower payment over a longer term usually costs more. Compare both.

Treating the interest rate as the whole cost. Arrangement fees, product fees and insurance are not in the rate. The APR includes compulsory fees, which is why it is the figure for comparison.

Assuming half the term means half the balance repaid. It does not — the balance falls slowly at first. Halfway through a 30-year mortgage, around 70% is still owed.

Dividing the annual rate by 12 and thinking that is the whole story. It is the right monthly rate for the payment formula, but twelve monthly charges compound to slightly more than the annual figure. 7.5% nominal is 7.76% effective.

Forgetting that early overpayments are worth more. The same £1,000 paid in year one saves far more than in year twenty.

Ignoring early repayment charges. Some agreements penalise overpaying. Check before relying on the saving.

Reading a calculator as a quote. A lender assesses affordability and credit history, and may offer a different rate or decline entirely. Every figure here is an estimate for planning.